On the Conflict Mitigating Effects of Trade: The India-Pakistan Case

Abstract

We examine whether greater inter-state trade, democracy and reduced military spending lower belligerence between India and Pakistan. We begin with theoretical models covering the opportunity costs of conflict in terms of trade losses and security spending, as well as the costs of making concessions to rivals. Conflict between the two nations can be best understood in a multivariate framework where variables such as economic performance, integration with rest of the world, bilateral trade, military expenditure, democracy scores and population are simultaneously considered. Our empirical investigation based on time series econometrics from 1950-2005 suggests that reduced bilateral trade, greater military expenditure, less development expenditure, lower levels of democracy, lower growth rates and less general trade openness are all conflict enhancing. Globalization, or a greater openness to international trade with the rest of the world, is the most significant driver of a liberal peace, rather than a common democratic orientation suggested by the pure form of the democratic peace.

Item Type:

MPRA Paper

Original Title:

On the Conflict Mitigating Effects of Trade: The India-Pakistan Case

Language:

English

Keywords:

Inter-state conflict and trade, democracy and conflict, conflict and economic development

Angell-Lane, Ralph Norman (1910) The Great Illusion: A Study of the Relation of Military Power in Nations to Their Economic and Social Advantage, London: Heinemann
Barbieri, Katherine (1996) Economic Interdependence: A Path to Peace or a Source of Intersate Conflict?’, Journal of Peace Research, 33 (1): 29-49.